Having the highest credit score will make it easier to qualify for mortgages and car loans, start a business, and, in some cases, secure a job. More importantly, a good credit score reflects a secure financial standing, meaning you have fewer money problems to worry about.
Working to build a healthy credit score is one of the most important financial goals you can have. But what exactly is a “good” score – and is there a perfect one?
Key Takeaways
- Improving your credit score is a key step toward financial freedom.
- You don’t need a perfect credit score to get the best rates on loans and credit.
- Consistent, on-time payments and managing your credit utilization are essential to your credit health.
- Monitoring your credit and protecting it against identity theft is crucial.
What is a Perfect Credit Score?
Credit scores are numbers that indicate your credit history’s health. Credit scoring models typically use a range from 300 to 850, and the top score in most cases is 850.
However, having the highest credit score possible isn’t necessary for receiving the best terms from lenders or being financially secure. In most cases, people can access the same benefits with an excellent score, which is typically in the high 700s or above.
Exact credit score ranges can vary depending on credit scoring model. Each lender may have different criteria for categorizing the quality of your credit score, but credit scores are often classified as follows:
- Poor: 300-579
- Fair: 580-669
- Good: 670-739
- Very Good: 740-799
- Excellent: 800-850
While these ranges can vary, having a credit score in the Very Good to Excellent range can help open doors to better financial opportunities.
Do I Need a Perfect Credit Score?
No, you don’t need the max credit score to get the best rates or terms on loans and credit. Having an exceptional credit score – usually in the high 700s or low 800s – can offer you the same benefits as a perfect score.
These benefits include:
- Access to premium credit cards
- Better loan terms
- Lower interest rates on credit cards and loans
- Higher credit limits
In other words, lenders don’t differentiate much between someone with a score of 820 and someone with a score of 850. Both are considered low-risk borrowers.
Tips to Help Improve Your Credit Score
Rather than focusing on achieving the highest credit score possible, it’s best to focus on making steps to positively impact your credit score and reach a higher score range. When you apply for a new line of credit, lenders consider several key aspects of your credit history, including:
- On-time payments
- How much you owe
- How many lines of credit you have
- How recently you’ve taken out new credit
If you want to improve your credit score, focus on the key factors that make up your score. By following these steps, you can steadily improve your credit over time.
Pay On Time
Making timely payments is one of the most critical factors in determining your credit score. Making all payments on time is crucial. To avoid missing deadlines, set up reminders or enroll in autopay.
If you need more flexibility with your due date, contact your creditor to ask if you can adjust your payment schedule.
Track Your Credit Utilization Ratio
Credit utilization is the ratio of how much credit you have available and how much you have spent. As a general rule, it’s best to have a credit utilization of 30% or lower.
Many credit experts believe that the ideal credit utilization ratio for those seeking excellent credit is about 10%.
To improve your credit utilization, you can:
- Make big monthly purchases on different credit cards
- Ask your credit card provider for an increased credit limit
- Make payments twice a month.
After paying off credit cards, be sure to leave the account open. Using your card for small purchases like groceries and gas and paying it off every month can be an excellent way to show that you can responsibly manage credit.
Pay Ahead
In addition to making payments on time, you should also aim to pay ahead. This means paying more than your monthly minimum payments or paying more than once a month.
Making extra payments will help keep you on top of your debt and pay it off faster. It will also help keep your credit utilization rate at a manageable level.
However, it is important to note that paying ahead or making extra payments does not carry over to future months – you’ll still need to make the minimum payment the following month. For example, even if you pay twice in March, you still have a minimum amount due in April.
Pay Down Your Highest Balances
While making all of your payments on time is vital to reaching the perfect credit score, you should focus all of your excess funds toward your accounts with the highest outstanding balance.
Just like paying ahead, lowering your biggest debts will have a huge impact on your credit utilization score. The faster you pay off these debts, the less you will have to pay in interest fees.
Be Cautious When Applying for New Credit
Part of having a perfect score is leveraging your borrowing and spending habits. One way to show that you have an active and balanced credit history is to take out new cards or loans.
When you apply for a loan or a credit card, a hard inquiry is made on your credit report. This inquiry can have a temporary negative effect on your history and could negatively impact your score.
While you should avoid making too many hard inquiries on your credit, applying for more credit can positively impact your credit score over time. Be thoughtful about the credit lines you open and always keep old accounts open to help balance your credit utilization ratio.
Monitor Your Credit Regularly
The worst thing that could keep you from reaching a perfect credit score is identity theft or credit report inaccuracies. In the blink of an eye, all of your hard work and strategic credit use could be flushed away by the careless actions of a cybercriminal.
IdentityIQ offers around-the-clock credit monitoring with real-time alerts to possible suspicious activity or changes on your credit report. This helps you maintain an up-to-date idea of your credit health while protecting your identity.
Diversify Your Credit
While it only makes up a small percentage of your score, having a diverse credit mix can positively impact your credit score. This includes a combination of credit types such as:
- Credit cards
- Auto loans
- Mortgages
- Student loans
The more varied your credit, the better you appear to lenders—so long as you’re managing these lines responsibly. Despite its relatively small role, having more than one line of credit will help give you the push you need to positively impact your score. Remember to only take out credit that you can pay on time and practice proper credit utilization habits.
Consider Negotiation or Settlement
If you’re struggling with managing multiple debts, making payments on time, or facing high interest rates and late fees, you may want to consider debt settlement. A debt settlement allows you to negotiate with lenders to pay a lump sum that is less than the total amount owed, which can quickly lower your credit utilization and relieve debt burden.
If your lender is open to negotiation, this method can get you out of debt and lower your credit utilization ratio quickly. Credit & Debt financial coaches can help you explore whether this option is right for your situation.
Get Expert Advice
While these guidelines are strong building blocks for improving your credit score, you may benefit from one-on-one financial advice.
If you’re in need of professional guidance on improving your credit score, call us today to speak with a credit coach. Our experts can help you take the steps you need to get your score as close to perfect as possible.
Bottom Line
Improving your credit score doesn’t require perfection, but it does require discipline and proactive financial management. Pay your bills on time, keep your balances low, and monitor your credit for signs of fraud.
Focusing on these key steps can help you steadily build an excellent credit score – and even if you don’t reach the max credit score, you’ll still enjoy the same benefits that come with great credit.
If you’re looking to strengthen your credit and get expert advice, Credit & Debt offers tailored solutions that can help you achieve your financial goals. Get started with Credit & Debt today to speak with a financial coach and take the first step toward a stronger financial future.
